The Swiss Financial Market Supervisory Authority (FINMA) supports the parameters presented by the Federal Council for the preparation of the draft consultation on amendments to the Banking Act. In particular, it supports the planned new statutory powers for FINMA in the areas of corporate governance, early intervention, recovery and resolution, as well as the introduction of higher capital requirements for systemically important banks with subsidiaries abroad. The proposed measures are key to strengthening the resilience of banks in the event of a crisis and thus the stability of the financial system.
In its parameters paper published today for the preparation of the draft consultation on amendments to the Banking Act following the emergency takeover of CS, the Federal Council sets out how it intends to improve the “too big to fail” rules in Switzerland. The measures include the introduction of an accountability regime, more powers for FINMA and higher capital requirements for systemically important banks with subsidiaries abroad.
FINMA welcomes the planned introduction of several preventive and disciplinary instruments that will set the right incentives for supervised institutions and thus make a decisive contribution to reducing the likelihood of crises and resolution occurring in the Swiss banking centre.
The introduction of an accountability regime requires the banks to define in a legally binding manner who is responsible for which decisions. This enables a clear allocation of responsibility and thus targeted new sanctions – for example, clawbacks of variable remuneration already paid out or bonus cuts. At the same time, it makes it easier to enforce existing measures such as withdrawing an individual’s fit and proper designation or imposing an industry ban. FINMA will implement the regime pragmatically and proportionately; the burden on small banks with a simple structure should be minimal.
FINMA’s demand for statutory powers to enable it to order supervisory measures earlier and more effectively (early interventions) is also included in the package by the Federal Council, as is the removal of the suspensive effect of appeals in such cases. In addition, FINMA should now also have the power to impose fines on offending institutions.
Furthermore, in order to be better prepared for a possible crisis at individual or multiple institutions, the Federal Council’s parameters paper provides for the requirements for recovery and resolution plans for systemically important banks to be increased. The range of crisis instruments will be expanded, giving FINMA the power to order measures to remedy deficiencies in recovery planning. FINMA was ready to restructure Credit Suisse in March 2023. In preparation for further, possibly different cases, the resolution options are to be expanded and additionally anchored in legislation, as proposed by FINMA. Overall, this will improve the possibilities for stabilising or restructuring an institution in a crisis or removing it from the market.
Last but not least, the Federal Council envisages that systemically important banks will in future have to fully deduct participations in foreign subsidiaries from the Swiss parent company’s Common Equity Tier 1 capital (avoidance of double leverage). This means that the equity of the foreign subsidiary can no longer be financed with debt. This will ensure that losses on participations do not affect the capital of the parent company, regardless of how these participations are valued. In the event of a crisis, this gives the bank concerned more options overall to rescue itself.
FINMA welcomes the Federal Council’s parameters and is convinced that they will significantly strengthen the resilience of the Swiss financial centre.
Information sheets on the capital backing and on the financing and valuation of foreign participations are available on the FINMA website.
